KUALITAS AUDIT, ARUS KAS OPERASI, DAN EARNINGS MANAGEMENT PADA PERUSAHAAN YANG MELAKUKAN INITIAL PUBLIC OFFERING DI INDONESIA
The objective of the study is to investigate the relationship between audit quality (as measured by auditor size), operating cash flow, and earnings management (as measured by discretionary current accrual) for Indonesian IPO firms. The current study employs modified Jones model to measure earnings management in the IPO process. Then it also uses auditor type (big-4 versus non big-4) to measure audit quality and operating cash flow deflated by lagged total assets previous year. The hypothesis predicts that Indonesian firms with higher quality auditors and higher operating cash flow engage less in earnings management in the IPO process. The sample consists of 63 new issues between 2000 and 2006 from the Indonesian Capital Market Directory. The results of this study found that big-4 auditors are not related to less earnings management in the IPO year in Indonesia. But operating cash flow is negatively related to earnings management. The finding shows that high operating cash flow constrain earnings management for Indonesian IPO firms and provides more precise information that management has incentive to engage in earnings management in the IPO process to garner greater proceeds. The study contributes to the literature that operating cash flow is an important determinant in earnings management for Indonesian IPO firms.